The purchase discount is calculated automatically even when merchandise was returned on a specific invoice.
Group of answer choices
True
False
The correct answer and explanation is:
The correct answer is False.
A purchase discount is typically a reduction in the amount owed for merchandise purchased, often given as an incentive for early payment. However, when merchandise is returned, the purchase discount is not automatically applied to the returned items. The calculation of the discount depends on the specific terms of the sale and the return policy of the seller.
When a purchase is made, the buyer may be eligible for a discount, often referred to as a “cash discount” or “early payment discount,” if the payment is made within a certain period, like 10 days. This discount is usually calculated based on the full purchase amount before the discount is applied. If merchandise is returned, the buyer must generally notify the seller and return the items as part of a formal process. Only after the return is processed can the discount be recalculated. In many cases, the discount is applied to the total invoice amount, which would then be adjusted for any returns.
In the event of a return, the amount credited for the merchandise will often exclude the discount previously applied, since the discount is generally based on the total purchase amount before returns. For example, if an invoice originally includes a 10% discount for early payment and later items are returned, the discount on the remaining goods may be recalculated based on the adjusted total.
This process ensures the discount is applied only to the value of the goods retained by the buyer. Therefore, the automatic application of the discount without considering returns would not be accurate. The discount must be manually adjusted to reflect the changes in the purchase amount due to returns.